Denmark and US adopt expansionary fiscal policies late in the economic cycle...
Normally the week ahead of Christmas is characterised by holiday peace setting in over politics and financial markets alike. At this time, government budget deals for the next year are typically safely sealed and investors have closed their positions awaiting the new investment year. However, this year, two countries, Denmark and the US, stood out as their politicians frantically scrambled to get fiscal packages through their parliaments.
In the US, the Republican Party achieved a major political boost by getting tax reform approved by both chambers of congress. The tax reform, costing an estimated USD1,500trn over the next 10 years, lowers corporate income tax from 31% to 21% and cuts the top marginal personal income tax rate from 39.6% to 37.0% while offering incentives for US companies to repatriate foreign income.
In Denmark, the Danish government managed to find agreement on a new budget for 2017. Similarly to the US republican party, the Danish government also attempted to push through tax cuts but failed in the end due to a lack of parliamentary support but plans to make another attempt to get the reform through in January.
So, apart from the political drama, what did these events have in common in the two countries? Well, the US tax reform and the Danish budget mean that fiscal policies in both countries will be expansionary next year (in Denmark, admittedly on a rather limited scale). Admittedly, other countries, such as Germany, Sweden and Estonia, may also be in such a situation (judging from IMF WEO data).
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